Pennsylvania GOP Leaders Push for New Measures to Regulate and Tax Skill Games

HARRISBURG — Leading legislators in the Pennsylvania Senate have issued a memorandum advocating for the regulation and taxation of skill games, indicating that this topic will be prioritized for the second consecutive session.

Skill games refer to the multitude of slot-like devices that have emerged in Pennsylvania’s bars, eateries, and convenience outlets over recent years. They remain currently unregulated — and untaxed — and a number of policymakers believe it is time for the state to rectify this.

Nonetheless, this matter is intricate, heavily influenced by lobbying, and crosses party lines and ideologies. It has lingered in the Capitol for nearly a decade.

Senate President Pro Tempore Kim Ward (R., Westmoreland), Senate Majority Leader Joe Pittman (R, Indiana), and two influential committee chairs disseminated the memorandum on Wednesday afternoon. Memos from leadership typically receive considerable scrutiny in the chamber.

The initiative goes beyond mere regulation. Taxing skill games could generate revenue that state Senate Republicans claim is urgently needed — to enhance Pennsylvania’s diminishing tax receipts and address specific new spending requirements.

In particular, they have associated this issue with financial troubles in public transit agencies, asserting that skill games might provide the consistent revenue needed to responsibly allocate more funds to agencies such as SEPTA.

“I keep reverting to this matter because, at least conceptually, it’s the only revenue source that appears to attract widespread interest,” Pittman mentioned to Spotlight PA in December.

To reach an agreement, leaders will need to navigate significant competing gambling interests, all of which have supporters within the legislative assembly.

Operators and manufacturers of skill games argue that they serve as a lifeline for small enterprises and social clubs. The legality of these machines was dubious for years, but operators now cite a ruling from an appeals court in 2023 which determined that the payouts of the machines are not solely based on chance, thus falling outside existing state gaming regulations.

Nonetheless, casino operators, a significant lobby, have sought to limit or even outright prohibit these machines, perceiving them as unregulated rivals.

They are not the only interested parties. The horse racing sector, the state lottery, and the proprietors of the slot-like video gaming terminals located in truck stops also maintain a vested interest in the discussion.

Pittman added last month that he was “hoping to have something formalized, in front of members” in the upcoming year to commence negotiations with the Democratic-controlled state House and Governor Josh Shapiro.

Shapiro, a Democrat, advocated for the legalization and regulation of skill games during last year’s budget address. He provided minimal information at that time, other than stating that the games ought to be monitored by the state’s gaming control board and taxed at 42%, a slightly lower rate compared to what casinos pay on their slot machine earnings. This initiative did not succeed.

The memorandum from the state Senate Republicans also lacks extensive details. Similar to Shapiro, they propose that the gaming control board oversee the machines; limit the devices to “a restricted number…at certain liquor-licensed and lottery-licensed venues across the Commonwealth”; and mandate that “fair and appropriate taxes are collected.” The specific rate is not disclosed.

Much of the aforementioned is expected to face opposition from skill game operators.

Industry lobbyist Mike Barley conveyed to Spotlight PA last year that a 42% tax rate was “more than the industry can manage.” A soon-to-be reintroduced industry-favorable proposal backed by state Senator Gene Yaw (R., Lycoming) proposed a tax rate of 16%. Yaw’s district in Williamsport hosts a skill game manufacturer.

Barley also expressed his desire for a “fair and neutral regulator” instead of the state’s gaming board. As previously reported by Spotlight PA, board members held private meetings with casino lobbyists prior to attempting to ban skill games in 2020.

In a statement Thursday, Barley noted that the skill games sector “looks forward to engaging and collaborating through the legislative process to find a solution that genuinely benefits all Pennsylvanians.”

In the meantime, casinos are advocating for a tax rate on skill games comparable to the roughly 50% rate imposed on their own slots. They have also lobbied for more stringent regulations on businesses operating skill games, such as requiring video surveillance of the machines and limiting the number of devices allowed in each location.

In a statement, Pete Shelly, a spokesperson for the casino-supported Pennsylvanians Against Gaming Expansion, remarked that without strict regulations, the proliferation of skill games “has allowed for underage gambling and provided no assistance for those with gambling addictions.”

Once discussions on gaming commence, other groups — such as manufacturers of video gaming terminals (VGTs) — are quick to engage. State law currently confines these devices, which function differently than skill games but bear similarities to slots, to truck stops and taxes them at 52%.

In an interview with Spotlight PA in October, Matthew Hortenstine, chief counsel for VGT producer J&J Ventures, contended that permitting all gaming devices to compete in a free market would yield more tax revenue and significantly benefit small businesses financially.

“What we champion is device parity, regulatory parity, [and] tax parity,” Hortenstine stated. “I don’t seek an advantage over them, but they shouldn’t have an advantage over me either.”

Resolving this contention is now in the hands of the split General Assembly, which has just concluded a tumultuous and largely ineffective session.

Pennsylvania House Democrats have remained silent on this issue, expressing that it is the responsibility of Senate Republicans to reach a consensus first. The lower chamber may also face challenges regarding the bill. For example, Philadelphia lawmakers have previously advocated for their city to maintain the authority to regulate these games at a level greater than the state.

Nevertheless, the quest for additional funds as the budget approaches may motivate the legislature to devise a resolution.

Although Pennsylvania currently holds approximately $3 billion in surplus funds, budget estimates forecast that this will be depleted by 2026 — and the state’s tax revenue is already slightly beneath expectations this year.

If balanced budgets are not achieved in the forthcoming years, the state would have to draw from its rainy day fund, reduce spending, or increase taxes to stabilize its finances.

Shapiro estimated that taxing the games at his preferred rate would yield $150 million in the initial year, and that annual revenues could grow thereafter.

When questioned about skill games at an unrelated press conference Thursday afternoon, Shapiro remarked that the taxation and regulation of such machines is “unfinished business” from the previous session and expressed optimism regarding the Senate GOP memorandum.

A representative for Shapiro additionally noted that the governor again plans to propose the item during his budget address on February 4. The specifics of this proposal, the representative added, are still under consideration.